Fitch rates new Sprint Capital debt at BBB

Fitch Ratings assigned a BBB rating to Sprint Capital Corp.'s proposed offering of $2 billion of unsecured obligations. Sprint Corp. will guarantee the proposed Rule 144A issue. Proceeds from the issue will be used to repay outstanding commercial paper and for general corporate purposes. The rating outlook for Sprint remains stable.

The proposed debt issue, coupled with Sprint's recently announced $1 billion term loan facility secured by the assets of its directory publishing business and the anticipated expansion of Sprint's accounts receivable securitization program, provides Sprint with increased financial flexibility to reduce outstanding commercial paper balances, Fitch said.

Although Sprint has experienced pressure accessing the commercial paper market during the first quarter of this year, Sprint continues to roll over maturing commercial paper albeit with shorter maturities. Retiring commercial paper provides Sprint with a more stable liquidity position.

While credit protection measures in 2001 fell short of Fitch's original expectations, Fitch is expecting credit protection metrics to be stronger in 2002. A key driver to improving credit measures will be the success of Sprint PCS and its ability to generate its 2002 EBITDA target of $3.0 billion.

Moody's cuts Sprint long-term rating to Baa2

Moody's downgraded the long-term rating of Sprint Corp. and the guaranteed primary issuer of the consolidated entity, Sprint Capital Corp. to Baa2 from Baa1. All long-term ratings remain under review for possible further downgrade, reflecting Moody's concerns about performance pressure in Sprint's long distance business.

Moody's also believes that Sprint's PCS group, which has experienced very strong growth since its launch in 1996, will face increasing competitive pressure over the course of the year that may slow that growth. The capital investment over the past two years, which has been particularly heavy at PCS, has left Sprint with a significant debt load while not yet generating free cash flow.

Sprint needs to finance its deficit cash flow (after capex) as well as to refinance its short-term debt and current maturities, which at year end 2001 stood at $3.2 billion of commercial paper and about $1.6 billion of current maturities on long-term debt. The company has recently announced that it has signed a commitment letter for a $1 billion commitment for a nine months term loan secured by the assets of its directory publishing business, which the company may sell.

While this proposed loan will help finance Sprint's estimated cash requirements for the year, Moody's believes the company will need to raise a significant amount of long-term financing in order to meaningfully reduce its current maturities.

Wednesday, Sprint announced a term debt deal of at least $2 billion. If needed beyond the current debt offering, further financing options could include additional long-term debt, hybrid securities, accounts receivables securitizations, or some combination thereof. Moody's notes that Sprint has $5 billion of undrawn committed bank facilities, although $3 billion of the back-up line has an August 2002 expiration and $2 billion has an August 2003 expiration.

Moody's confirms J.C. Penney convertible at Ba3

Moody's Investors Service confirmed the ratings of J.C. Penney Co. Inc., including the convertible subordinated notes at Ba3, and changed the outlook on the senior implied rating to stable from negative, while leaving the outlook on senior unsecured debt at negative, reflecting management's success in stemming the multi-year deterioration in operating performance and in achieving significant improvement in profitability in 2001at both the department stores and Eckerd drug stores.

However, the outlook for the senior unsecured debt rating remains negative pending an assessment of the structure of the revolving credit facility that is to be renewed later in 2002. Penney's ratings reflect the challenge that the company continues to face in sustaining the improvements that it has already achieved and in narrowing the gap between its level of profitability and its peers.

Over the course of the last year operating results and overall credit protection measures have improved from a low base to a level that is more appropriate for the rating. Management has made demonstrable progress in improving the merchandising strategy and assortment at the department stores, and in repositioning the Eckerd drug stores to compete more effectively for sales of front-end merchandise.

However, after the rapid decline in operating performance that occurred in fiscal 2000 and the continuing competitive challenge across all business units, Moody's is looking for signs that the improvements are sustainable and that the company can narrow the competitive gap between its stores and industry leaders. The ability to show improved results in 2002 is a critical rating factor given that competitors are likely to formulate a response to a resurgent Penney's and Eckerd.

The company's credit quality is bolstered by its prudent early re-financing of upcoming bond maturities and retention of cash proceeds from asset sales. As of the end of January 2002, Penney had $2.8 billion of cash available to meet $900 million of maturing bonds, in late 2002, and for seasonal working capital requirements.

While it is not yet a factor in the rating or in the outlook, Moody's will continue to monitor developments surrounding the Eckerd billing inquiries and the status of the class-action lawsuit.

Moody's rates Sinclair new notes at B2

Moody's assigned a B2 rating to Sinclair Broadcast Group Inc.'s (Sinclair's) proposed $300 million of senior subordinated notes due 2011. The company's senior implied rating is Ba3 and unsecured issuer rating is B1. The outlook is stable.

In November, Moody's confirmed all of Sinclair's existing debt ratings. The current transaction will refinance $300 million of Sinclair's bank debt with the subordinated note offering and as a result there will be a concomitant reduction in the company's bank facility.

The confirmation of Sinclair's ratings considers the ongoing weakness in the advertising market and its negative impact on the company's leverage as well as Sinclair's high capital expenditures and rising programming costs. Capital expenditures are a very high $60 million for 2002 (vs. $30 million in 2001) due in part to expenditures associated with digital television. Sinclair is further burdened by its lower ranked stations which receive proportionally less advertising revenues during periods of economic weakness.

However, the ratings also reflect Sinclair's broad portfolio of television stations and high number of station duopolies. Further, Moody's believes that there is meaningful asset coverage of the debt, particularly in light of the changing regulatory environment which is expected to increase demand for television stations. The ratings are also supported by management's interest in swaps over acquisitions in order to enhance its duopoly positions and a sizable asset sale strategy as a means of de-leveraging. The current note offering does not affect Sinclair's leverage but should improve its ability to service its debt.

The stable outlook incorporates the likelihood that Sinclair's recent bank amendment should provide adequate financial flexibility over the coming year. Anticipated asset sales or swaps could have a positive impact on the company's outlook. Alternatively, continued deterioration in the Sinclair's cash flow and leverage would lead to downward pressure on the outlook and ratings.

Moody's confirms Service convertibles at B3

Moody's on Wednesday confirmed the ratings of Service Corp. International, including the $345 million senior subordinated convertible notes due 2008 at B3, and revised the ratings outlook to positive from stable, reflecting meaningful advancements in debt reduction, assets sales, cost reductions and new business initiatives. At year end 2001, debt was reported by Service at $2.5 billion, down 23% from a year before and down 41% from a $4.2 billion peak at Sept. 30, 1999.

While the company has made significant strides in improving its credit profile, it continues to carry a heavy debt and interest burden as it attempts to stabilize and position its business for the long run. While Service currently has substantial liquidity in the form of cash on hand, it has substantial debt maturities in 2002 and 2003, including bonds subject to put provisions. The company's revolving credit facilities terminate in June 2002.

Sustained increases in recurring cash flow, further funded debt reductions and additional rationalizations to the company's business model to support growth relative to flat demographics would be positive trends for this issuer that could lead Moody's to consider an upgrade. Failure to demonstrate sustainable levels of higher cash flow and continued improvements in cost structure and leverage, are factors that could lead Moody's to consider a downgrade.

Moody's affirms St. Paul senior debt at A2

Moody's on Wednesday affirmed The St. Paul Cos. A2 senior unsecured debt rating, A3 subordinated debt rating and Prime-1 commercial paper rating. The ratings currently have a stable outlook. St. Paul intends to issue $400 million of five-year senior unsecured debt from its available shelf filings, Moody's noted, with proceeds used primarily to replace short-term borrowings, namely commercial paper.

Moody's said favorable factors include successful implementation of the new strategic plan as manifested by strong operating earnings, organic growth in capital and decline in financial leverage and increased stability and quality of earnings as would come from a change in risk profile and strong reserving practices. The strategic plans to reduce or exit exposures in its healthcare, international and reinsurance segments should temper future earnings volatility and positively impact the bottom line, pending successful execution, Moody's said.

Alternatively, Moody's said adverse factors include additional large losses as from further terrorist events, an increase in financial leverage absent success of the new strategic plan or lower than anticipated earnings.

S&P rates new Omnicom convertibles at A

Standard & Poor's assigned an A rating to Omnicom Group Inc.'s new issue of zero-coupon senior senior unsecured notes due 2032.

S&P downgrades Primus notes

Standard & Poor's downgraded some ratings of Primus Telecommunications Group Inc. and removed the company from CreditWatch with negative implications. The outlook is negative.

Ratings affected include Primus' corporate credit rating, confirmed at CCC+, its $225 million 11.75% senior notes due 2004, $150 million 9.875% senior notes due 2008, $200 million 11.25% senior notes due 2009 and $200 million senior notes due 2009, all lowered to CCC- from CCC, and its $300 million 5.75% convertible subordinated debentures due 2007, confirmed at CCC-.

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